DEBT CONVERSION

New Zealand Herald, Volume LXX, Issue 21503, 29 May 1933, Page 10

DEBT CONVERSION

LOCAL BODY LOANS AUCKLAND AUTHORITIES CONSIDERATION OF SCHEMES No finality has been reached by Auckland local bodies as a whole as to details for converting their internal indebtedness to a basis of 41 per cent interest, following the recent legislation. Inquiries of tho authorities concerned show that investigations of tho factors involved have reached various stagos of progress. Although in the majority of cases study of the matter is only in tho preliminary stages, instances occv" in which a tentative scliemo has been almost completely worked out. The general experience is that tho matter bristles with difficulties, and while some authorities anticipate considerable benefit as a i*esult of conversion, others find themselves in circumstances in which little gain is apparent. It seems evident, however, that applications for conversion will be general. All schemes so far are necessarily tentative, as they have to be submitted to tho Local Government Loans Board, which may approve, amend or reject them, with tho Minister of Finance as the final arbiter, but in no case, even where a scheme approaches finality, has it yet been decided how tho premium, where necessitated, shall bo disbursed. Tho alternatives are a cash adjustment and the issue of further debentures, and in this matter are involved actuarial calculations that complicato the position. Sinking Fund Problems

An added complication arises from tho cxistenco of snia.ll debenture holders' who, from tho smallncss of their holding, will necessarily have to receive their premium in cash oven if a general scheme of payment by debenture issue is adopted. Another intricate matter that local bodies liave to solvo is tho effect of conversion upon sinking funds. Jll a number of cases investigations of tho whole question have reached a stage where sufficient information will bo available to allow the local body concerned to discuss the matter effectively this week. In tho case of the Auckland City Council tho matter was referred recently to tho Finance Committee, which is making a thorough, study of tho questions involved, while tho Transport Board, Harbour Board and Hospital Board have yet to consider the matter. The Transport Board has an internal indebtedness of £769,700, and that of tho Harbour Board also is substantial. The chairman of the Hospital Board. Mr. W. Wallace, said at the week-end that his board would not havo a great deal to gain by conversion, as between 1932 and December, 1935, it would havo paid off £250,000 of its indebtedness, leaving only £85,000 of loans, none of which would mature until 1947. While ho did not doubt the latter would be converted, ho thought nothing was to be gained by interfering with the former, which it would be hardly worth while to convert. Auckland Power Board

The Auckland Power Board has £712,500 of domiciled in New Zealand at an average interest rate of 5i per cent. No saving is anticipated from conversion after the cost of the operation has been met. It is probable that premium disbursement, where required, will be made by cash. A further possibility is stated to bo that some holders may be given the opportunity of redeeming; their debentures instead of taking a cash premium. In tho case of the Newmarket Borough Council, which has 18 internal loans totalling £119,744, it is expected by conversion to save about £2OOO a year. In addition to conversion the consolidation of loans is contemplated, resulting in a substantial saving in administrative work. The method of premium disbursement has not been decided upon. The Devonport Borough Council also has a scheme along similar lines and expects to save £2OOO a year. In this case there are about 30 loans totalling £240.000, at an average interest rato of about 5% per cent. Tho Mount Albert Borough loan domiciled in Now Zealand totals £720,714, the interest rates of the bulk ranging between 5i and 6 per cent. The matter of conversion is still the subject of consideration, as is the case also with tho Mount Eden Borough. Tho internal indebtedness of Mount Eden is £780,000, of which tho total, according to the Mayor, Mr. T. McNab, will probably be converted. The position will be discussed by the council to-morrow evening.

In the case of tho Qne Tree Hill Borough a total of about £95,000, at an average interest rate of 5i per cent, is involved. The matter has been referred to a committee of tho council and its report is awaited. The Takapuna and Northcote Borough Councils also have tho question under review. Tn both of these instances it is stated little benefit can accrue from conversion. HAMILTON BOROUGH LOANS TOTAL OF £SOO,OOO INVOLVED [from our own correspondent] HAMILTON, Sunday The conversion of Hamilton Borough Council loans aggregating £BOO,OOO on a 4J per cent basis has been greatly simplified as the result of advice received by Mr. S. V. Tyler, a member of the council, and Mr. W. L. Waddel, town clerk, from Treasury and Audit Department officials in Wellington. On his return to Hamilton yesterday Mr. Tyler said the problem of converting the various borough loans- was bristling with difficulties. Provision had to lie niado for an additional £16,000 in premiums payable to the debenture-holders when making tho reduction from the existing rato of interest to the new one, and this matter had been satisfactorily arranged. Mr. Tyler said tho actual conversion would not cost the borough anything, and thcro would bo a financial saving owing to tho system of grouping and consolidation that would bo adopted.